All Topics / Legal & Accounting / Complicated CGT

Viewing 9 posts - 1 through 9 (of 9 total)
  • Profile photo of OzmanOzman
    Member
    @ozman
    Join Date: 2013
    Post Count: 32

    Have I got CGT thinking right?

    Bought a PPR house lived in it 18 months got transferred (Gov Transfer), rented house ended up for 10 years 6 months moved back as PPR 3 years looking to sell.

    CGT 6 year rule times out so no benefit there.

    CG = difference between start if rent value (SRV)  to end of rent value (ERV)                             CG = ERV – SRV

    or CG = Sale value (Sv)  – purchase value (Pv) proportional to PPR and Rental time               CG =  (Sv – Pv) / (14.5 / 4.5)

    or some other formula

    How does one get on without valuations??

    How is CGT applied in such instances?

    Thanks

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    CGT exemption should still be valid for 6 out of the 10 years.

    http://www.ato.gov.au/Media-centre/Articles/Moving-on–Remember-the-six-year-rule-for-CGT/

    A valuer does a valuation based on sales history from that time Ie. You purchased 200k. lived in for 18 months say it went up to 210k. you then rented it for 10 years. 6 years of that will be exempt. A Valuer will have to value from 7.5 years into the property. Say property valued at 400k at that time.

    Now you have another 7.5 years of which (4.5 years is continue to rent and the last 3 are your ppor again.

    Say property increased in value to 500k (from 400k) CGT can be applied as a percentage ie. 3/5ths of the time it was rented and 2/5ths was poor so you will get a excemption for 2/5 ths of the time. and the pay CGT on the remaining 3/5 which say in this example would be 60k . Plus you would of held the asset for over a year (if in personal or trust name) so entitled to 50% discount. Therefore pay tax on 30k. (at your marginal tax rate) minus and capital expenditure you have spent on the property ie additions or previous capital losses.

    Profile photo of OzmanOzman
    Member
    @ozman
    Join Date: 2013
    Post Count: 32

    Thanks Wilco1

    I have a better grip of its application now

    Profile photo of Modernity InvestingModernity Investing
    Participant
    @mark-coburn
    Join Date: 2006
    Post Count: 181
    wilko1 wrote:
    CGT exemption should still be valid for 6 out of the 10 years.

    http://www.ato.gov.au/Media-centre/Articles/Moving-on–Remember-the-six-year-rule-for-CGT/

    A valuer does a valuation based on sales history from that time Ie. You purchased 200k. lived in for 18 months say it went up to 210k. you then rented it for 10 years. 6 years of that will be exempt. A Valuer will have to value from 7.5 years into the property. Say property valued at 400k at that time.

    Now you have another 7.5 years of which (4.5 years is continue to rent and the last 3 are your ppor again.

    Say property increased in value to 500k (from 400k) CGT can be applied as a percentage ie. 3/5ths of the time it was rented and 2/5ths was poor so you will get a excemption for 2/5 ths of the time. and the pay CGT on the remaining 3/5 which say in this example would be 60k . Plus you would of held the asset for over a year (if in personal or trust name) so entitled to 50% discount. Therefore pay tax on 30k. (at your marginal tax rate) minus and capital expenditure you have spent on the property ie additions or previous capital losses.

    Well written

    Modernity Investing
    Email Me

    Profile photo of Rob G.Rob G.
    Participant
    @rob-g.
    Join Date: 2010
    Post Count: 70

    From your stated facts:

    Valuation is at the first day it was rented for cost base

    This is the day it is deemed acquired by you for the purpose of tracing ownership and apportioning

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    ozman when you were transferred did you buy another house at the new location ?

    If you bought a second house and lived in it

    you will lose the cgt exemption  on the second house

    for six years if you claim it on the first house during the first six years.

    As you can only have one place at a time as a main residence.

    Profile photo of OzmanOzman
    Member
    @ozman
    Join Date: 2013
    Post Count: 32

    Thanks members

    YesDuckster,

    I did buy another at about 18 months into the rental, bought a Rural Primary Production Block close to a city, I still hold this and all going well, will subdivide to rural residential blocks at a future date.

    Our plan has been to buy PPRs that have good CG potential or development potential and build up a portfolio.

    It will give our accountant some work but I am just trying to get a good understanding in preparation for future sale of some property.

    So if P1 PPR purchase is point 0 lived in for 1.5 Y + 6 years is claimed on property 1 than that is year 7.5

    Property 2 then does not become available for CGT exemption until Y7.5

    Property 3 purchased at Y 8.5 could forgo (?? )  6 year  CGT exemption on P2 and apply to P3  and so on.

    or option not to apply 6 year on P1 and apply to P2  or what ever most financially advantageous ??

    That is why I called the post complicated CGT as I thought it would develop !

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    Choose the properties that would have had the most capital gain. Ie if property 1 only went up by 100k but property 2 went up by 200k it makes sense to have your exemption on property 2.

    Profile photo of OzmanOzman
    Member
    @ozman
    Join Date: 2013
    Post Count: 32

    So my understanding is right Wilco1??

    Will depend on which and when selling and what property. Things change again once in retirement as can tip some into Super.

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